NOVAVAX INC MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
Any statements in the discussion below and elsewhere in this Annual Report on Form 10-K about expectations, beliefs, plans, objectives, assumptions or future events or performance ofNovavax, Inc. ("Novavax ," together with its wholly owned subsidiariesNovavax AB and Novavax CZ, the "Company," "we" or "us") are not historical facts and are forward-looking statements. Such forward-looking statements include, without limitation, statements about our capabilities, goals, expectations regarding future revenue and expense levels and capital raising activities; our operating plans and prospects; potential market sizes and demand for our product candidates; the efficacy, safety, and intended utilization of our product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies; the development of our preclinical product candidates; our expectations related to enrollment in our clinical trials; the conduct, timing, and potential results from clinical trials and other preclinical studies; plans for and potential timing of regulatory filings; our expectation of manufacturing capacity, timing, production, distribution, and delivery for NVX-CoV2373 by us and our partners; our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373 and NanoFlu Program; the expected timing, content, and outcomes of regulatory actions; funding from theU.S. government partnership formerly known as Operation Warp Speed ("OWS"), theU.S. Department of Defense ("DoD") and theCoalition for Epidemic Preparedness Innovations ("CEPI"), and payments from theBill & Melinda Gates Foundation ("BMGF"); funding under our advance purchase agreements and supply agreements; our available cash resources and usage and the availability of financing generally; plans regarding partnering activities and business development initiatives; and other matters referenced herein. Generally, forward-looking statements can be identified through the use of words or phrases such as "believe," "may," "could," "will," "would," "possible," "can," "estimate," "continue," "ongoing," "consider," "anticipate," "intend," "seek," "plan," "project," "expect," "should," "would," "aim," or "assume," the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs and expectations about the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Forward-looking statements involve estimates, assumptions, risks, and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements, and, therefore, you should not place considerable reliance on any such forward-looking statements. Such risks and uncertainties include, without limitation, challenges satisfying, alone or together with partners, various safety, efficacy, and product characterization requirements, including those related to process qualification and assay validation, necessary to satisfy applicable regulatory authorities, such as theU.S. Food and Drug Administration ("FDA"),World Health Organization ("WHO"),United Kingdom ("UK")Medicines and Healthcare Products Regulatory Agency ("MHRA"), theEuropean Medicines Agency ("EMA"), theRepublic of Korea's Ministry of Food and Drug Safety ("MFDS"), orJapan's Ministry of Health, Labour and Welfare ("MHLW"); unanticipated challenges or delays in conducting clinical trials; difficulty obtaining scarce raw materials and supplies; resource constraints, including human capital and manufacturing capacity, constraints on the ability ofNovavax to pursue planned regulatory pathways, alone or with partners, in multiple jurisdictions simultaneously, leading to staggering of regulatory filings, and potential regulatory actions; challenges meeting contractual requirements under agreements with multiple commercial, governmental, and other entities; and other risks and uncertainties identified in Part I, Item 1A "Risk Factors" of this Annual Report on Form 10-K, which may be detailed and modified or updated in other documents filed with theUnited States Securities and Exchange Commission ("SEC") from time to time, and are available at www.sec.gov and at www.novavax.com. You are encouraged to read these filings as they are made. 64 -------------------------------------------------------------------------------- Table of Contents We cannot guarantee future results, events, level of activity, performance, or achievement. Any or all of our forward-looking statements in this Annual Report on Form 10-K may turn out to be inaccurate or materially different from actual results. Further, any forward-looking statement speaks only as of the date when it is made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Overview
We are a biotechnology company that promotes improved health globally through
the discovery, development, and commercialization of innovative vaccines to
prevent serious infectious diseases. The Company's proprietary recombinant
technology platform harnesses the power and speed of genetic engineering to
efficiently produce highly immunogenic nanoparticles designed to address urgent
global health needs.
Our vaccine candidates in our near-term pipeline, including both NVX-CoV2373 and
the NanoFlu Program, are genetically engineered, three-dimensional
nanostructures of recombinant proteins critical to disease pathogenesis. At the
forefront of our pipeline is our COVID-19 vaccine candidate, NVX-CoV2373.
NVX-CoV2373 has received provisional approval, conditional marketing
authorization ("CMA") and emergency use authorization ("EUA") from multiple
regulatory authorities globally. In January 2022 , we also submitted a request to
the FDA for emergency use authorization of NVX-CoV2373. We also advanced our
NanoFlu Program vaccine program through a Phase 3 clinical trial, which
demonstrated positive top-line results and achieved statistical significance in
key secondary endpoints. Additionally, we are currently evaluating a
COVID-influenza combination vaccine in a Phase 1/2 clinical trial, which
combines the company's NVX-CoV2373 and our NanoFlu Program vaccine candidates.
We believe that our protein-subunit-based candidates elicit differentiated
immune responses that may be more efficacious than naturally occurring immunity
or other vaccine approaches. These vaccine candidates incorporate Novavax '
proprietary saponin-based Matrix-M™ adjuvant to enhance the immune response and
stimulate high levels of neutralizing antibodies.
We remain focused on the manufacturing and distribution to bring our NVX-CoV2373
vaccine candidate to market following global regulatory authorizations. Through
ongoing booster studies in our clinical trials, as well as the development of
COVID-19 variant strain vaccine candidates, we continue to collect data to
characterize and optimize vaccine performance. We expect to leverage these
clinical insights to advance the use of our COVID-19 vaccine for both primary
vaccination around the globe, to use within a booster setting, and for the
pediatric population amidst the ongoing and evolving COVID-19 pandemic.
Although NVX-CoV2373 and the NanoFlu Program are our near-term priorities, we
remain optimistic that the additional programs in our pipeline, including our
vaccine candidates in our RSV Program, and our partner-led malaria candidates,
present strong opportunities for future development.
Company Highlights
Fourth quarter 2021 and recent highlights
Obtained multiple global regulatory approvals for COVID-19 vaccine
•Nuvaxovid™ was granted authorization (emergency, provisional, interim conditional or emergency use listing) inGreat Britain , theEuropean Union , theWHO ,Canada ,Australia ,United Arab Emirates ,Singapore , andNew Zealand ; received Biologics License Application approval inSouth Korea with our partner, SK bioscience
• Covovax™ was granted emergency use authorization in
Completion of multiple global regulatory submissions for COVID-19 vaccine
• Completion of regulatory submissions for the authorization of NVX-CoV2373 in the
and
• SIIPL has completed the submission to
• Takeda, our partner, has completed the submission to
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COVID-19 Vaccine Advance Purchase Agreement
• APA performed with
• Possibility to buy 5 million additional doses
Manufacture, supply and distribution of COVID-19 vaccines
•Built manufacturing and robust supply network to support over 2 billion annual doses of capacity and initiated distribution of NVX-CoV2373 to begin fulfillment of our commitments
• Expanded partnership with SIIPL through new supply agreement
• Reserved significant additional manufacturing capacity with SK bioscience to produce antigens, and SK bioscience acquired non-exclusive rights to sell to governments in
• Entered into a contract manufacturing agreement with Mabion for large-scale manufacturing of NVX-CoV2373 until 2026
• Announced data resulting from an in-depth analysis of our
• Vaccine efficacy of 82.5% in protecting against all COVID-19 infections, both symptomatic and asymptomatic, as measured by PCR+ or anti-N seroconversion
• 82.7% overall vaccine effectiveness against disease over a 6-month data collection period (median of 101 days of surveillance)
• 100% vaccine efficacy against serious diseases
•Announced data from PREVENT-19 Phase 3 pediatric expansion in adolescents aged 12 through 17, achieving primary effectiveness endpoint and comparability to adult population
• Adolescent neutralization responses ~1.5 times higher than adults
• 82% clinical efficacy against the Delta variant
• IgG and functional immune responses against variants were higher than in adults
• Generally well tolerated without any safety signal
• Expect to complete global regulatory filings in the first quarter of 2022
• Expect to initiate a pediatric study in young children in the second quarter of 2022
• Launch of the Phase 3 PREVENT-19 recall study to assess the safety and efficacy of a third dose of NVX-CoV2373
• Heterologous booster data announced in Phase 2 COV-Boost study, with NVX-CoV2373 demonstrating ability to serve as a well-tolerated third dose to boost immune levels
•Announced immunologic cross-reactivity data from vaccine booster and adolescent
studies to highlight potential utility of NVX-CoV2373 against Omicron variant
(B.1.1.529)
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• Demonstrated broad cross-reactivity of IgG antibodies against Omicron and other circulating variants with a primary 2-dose regimen
• The third dose at 6 months produced an enhanced immune response showing a 9.3-fold increase in IgG and a 19.9-fold increase in functional ACE2 inhibition
•Ongoing PREVENT-19 Phase 3 pediatric expansion showed robust immune response 2-to-4-fold higher than adults against evaluated variants, including Omicron following primary 2-dose regimen
• Omicron-specific vaccine development with GMP manufacturing and laboratory evaluations underway
• Expect delivery towards the end of the first quarter of 2022
• Ongoing phase 1/2 trial for combined COVID-flu vaccine
• Data is expected within
• Expect to launch a Phase 2 clinical trial for the combined COVID-influenza vaccine and standalone NanoFlu in the second half of 2022
Publication Highlights
• Final analysis of the phase 3 PREVENT-19 trial in
• Final analysis of
• Final analysis of the COV-Boost study conducted by
Posted in
Sales of common shares
During 2021, we issued and sold 2.6 million of shares of our common stock resulting in net proceeds of approximately$565 million under our various At Market Issuance Sales Agreements. The most recent At Market Issuance Sales Agreement, which we entered into inJune 2021 (the "June 2021 Sales Agreement") and is currently in effect, allows us to issue and sell up to$500 million in gross proceeds of shares of our common stock. InJanuary 2022 , we sold 0.4 million shares of our common stock resulting in net proceeds of$34.7 million under theJune 2021 Sales Agreement, with a remaining balance of$464.9 million available thereafter.
Significant Accounting Policies and Use of Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in theU.S. The preparation of our consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and equity and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, particularly estimates relating to accounting for revenue, lease accounting, pre-launch inventory, and accounting for research and development expenses have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.
Revenue recognition
We perform research and development under government funding, grant, license and clinical development agreements. Our revenue primarily consists of funding underU.S. government contracts and other arrangements to advance the clinical 67
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development and manufacture of NVX-CoV2373. Our
At contract inception, we analyze our revenue arrangements to determine the appropriate accounting under generally accepted accounting principles inthe United States ("U.S. GAAP"). Currently, our revenue arrangements represent customer contracts within the scope of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606") or are subject to the contribution guidance in ASC Topic 958-605, Not-for-Profit Entities - Revenue Recognition ("ASC 958-605"), which applies to business entities that receive contributions within the scope of ASC 958-605. We recognize revenue from arrangements within the scope of ASC 606 following the five-step model: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. We recognize contribution revenue within the scope of ASC 958-605 when the funder-imposed conditions have been substantially met. Contributions are recorded as deferred revenue until the period in which research and development activities are performed that satisfy the funder-imposed conditions. Under ourU.S government contracts, we are entitled to receive funding, on a cost-reimbursable or cost-reimbursable-plus-fixed-fee basis, to support certain activities related to the development, manufacture, and delivery of NVX-CoV2373 to theU.S. government. We analyzed these contracts and determined that they are within the scope of ASC 606. Our obligations under each of the contracts are not distinct in the context of the contract as they are highly interdependent or interrelated and, as such, they are accounted for as a single performance obligation. The transaction price under these arrangements is the consideration we expect to receive and consists of the funded contract amount and the unfunded variable amount to the extent that it is probable that a significant reversal of revenue will not occur. We recognize revenue for these contracts over time as we transfer control over the goods and services and satisfy our performance obligation. We measure progress toward satisfaction of our performance obligation using an Estimate-at-Completion ("EAC") process, which is a cost-based input method that reviews and monitors the progress towards the completion of our performance obligation. Under this process, we consider the costs that have been incurred to-date, as well as projections to completion using various inputs and assumptions, including, but not limited to, progress towards completion, labor costs and level of effort, material and subcontractor costs, indirect administrative costs, and other identified risks. Estimating the total allowable cost at completion of our performance obligation under a contract is subjective and requires us to make assumptions about future activity and cost drivers. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the timing of revenue and fee recognition on our contracts. Allowable contract costs include direct costs incurred on the contract and indirect costs that are applied in the form of rates to the direct costs. Progress billings under the contracts are initially based on provisional indirect billing rates, agreed upon between us and theU.S. government. These indirect rates are subject to review on an annual basis. The impact of changes in the indirect billing rates are recorded in the period when such changes are identified and reflect the difference between actual indirect costs incurred compared to the estimated amounts used to determine the provisional indirect billing rates agreed upon with theU.S. government. We recognize revenue on ourU.S government contracts based on reimbursable allowable contract costs incurred in the period up to the transaction price. For our cost-reimbursable-plus-fixed-fee contracts, we recognize the fixed fee based on the proportion of reimbursable contract costs incurred to total estimated allowable contract costs expected to be incurred on completion of the underlying performance obligation as determined under the EAC process. Changes in estimates related to the EAC process are recognized in the period when such changes are made on a cumulative catch-up basis. We include the transaction price comprising both funded and unfunded portions of customer contracts, in this estimate. We have not experienced any material difference as a result of change in estimate arising from the EAC process. Our other funding arrangements primarily include the CEPI Grant Funding and CEPI Forgivable Loan Funding (each as defined in "Note 2-Summary of Significant Accounting Policies" included in our Notes to Consolidated Financial Statements). The CEPI Forgivable Loan Funding is designated for the prepayment of certain manufacturing activities. We analyzed these other funding arrangements and determined that they are not within the scope of ASC 606 as they do not provide a direct economic benefit to the grantor. Payments received under the grant funding arrangements are considered conditional contributions under the scope of ASC 958-605 and are recorded as deferred revenue until the period in which such research and development activities are actually performed that satisfy the funder-imposed conditions. Payments received under the CEPI Forgivable Loan Funding are only repayable if the proceeds of sales to one or more third parties of NVX-CoV2373 cover our costs of manufacturing such vaccine candidate, not including manufacturing costs funded by CEPI. As the financial risk remains with CEPI, we have determined that the use of the CEPI Forgivable Loan Funding is outside the scope of ASC Topic 470, Debt. The research and development risk is considered substantive, such that it was not probable that the development would be successful at the inception of the contract. Therefore, we have concluded that ASC Topic 730, Research and Development is considered applicable and most appropriate. Given the financial risk associated with the research and development activities lies with CEPI because repayment of any funds provided by CEPI depends solely on the results of the research and development activities having future economic benefit, we account for our obligation under the CEPI Forgivable 68
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Loan Funding as a contract to perform research and development for others. We have determined that payments received under these agreements should be recorded as revenue under ASC 958-605 rather than a reduction to research and development expenses. This is consistent with our policy of presenting such amounts as revenue. In reaching this determination, we considered a number of factors, including whether we are principal under the arrangement, and whether the arrangement is significant to, and part of, our core operations. We will record revenue as we perform the contractual research and development services. We have manufacturing and supply arrangements that include a license to use our intellectual property. The licensing arrangements include sales-based royalties, certain development and commercial milestone payments, and the sale of proprietary Matrix-MTM adjuvant. The license is deemed to be the predominant item to which the milestone payments and sales-based royalties relate. Because development milestone payments are contingent on the achievement of milestones that are not within our control or the control of the licensee, such as regulatory approvals, the payments are not considered probable of being achieved and are excluded from the transaction price until the milestone is achieved. We recognize revenue when the development milestone is achieved. For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, wherein the license is deemed to be the sole or predominant item to which the payments relate, we recognize revenue on the satisfaction (or partial satisfaction) of the performance obligation to which some or all of the payment has been allocated, which is normally when the related sales occur. We generally allocate the transaction price to each performance obligation based on a relative standalone selling price basis. We develop assumptions that require judgment to determine the standalone selling price for each performance obligation in consideration of applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer.
Lease Accounting
We enter into manufacturing supply agreements with CMOs and CDMOs to manufacture
our vaccine candidates. Certain of these manufacturing supply agreements include
the use of identified manufacturing facilities and equipment that are controlled
by us and for which we obtain substantially all the output and may qualify as an
embedded lease. We treat manufacturing supply agreements that contain a lease as
lease arrangements in their entirety. The evaluation of leases that are embedded
in our CMO and CDMO agreements is complex and requires judgment in determining
whether the contract, either explicitly or implicitly, is for the use of an
identified asset, which generally is the use of a portion of the manufacturing
facility, whether we have the right to direct the use of, and obtain
substantially all of the benefit from, the identified asset, the term of the
lease and the fixed lease payments under the contract. Depending on the
contract, the lease commencement date, defined as the date on which the lessor
makes the underlying asset available for use by the lessee and is the date on
which the Company is required to accrue lease expenses, may be different than
the inception date of the contract. We determine the non-cancellable lease term
of our embedded leases based on the impact of certain expected milestones on our
option to terminate the lease where we are reasonably certain to not exercise
that option. We evaluate changes to the terms and conditions of a lease contract
to determine if they result in a new lease or a modification of an existing
lease. For lease modifications, we remeasure and reallocate the remaining
consideration in the contract and reassess the lease classification at the
effective date of the modification. We classify leases as either operating or
finance leases based on the economic substance of the agreement. We also enter
into non-cancelable lease agreements for facilities and certain equipment.
For leases that have a lease term of more than 12 months at the lease
commencement date, we recognize lease liabilities, which represent our
obligation to make lease payments arising from the lease, and corresponding
right-of-use ("ROU") assets, which represent the right to use an underlying
asset for the lease term, based on the present value of the fixed future
payments over the lease term. We calculate the present value of future payments
using the discount rate implicit in the lease, if available, or our incremental
borrowing rate. For all leases that have a lease term of 12 months or less at
the commencement date (referred to as "short-term" leases), we have elected to
apply the practical expedient in ASC Topic 842, Leases ("ASC 842") to not
recognize a lease liability or ROU asset but instead, recognize lease payments
as an expense on a straight-line basis over the lease term and variable lease
payments that do not depend on an index or rate, as an expense in the period in
which the variable lease costs are incurred based on performance or usage in
accordance with contractual agreements. In determining the lease period, we
evaluate facts and circumstances that could affect the period over which we are
reasonably certain to use the underlying asset while taking into consideration
the non-cancelable period over which we have the right to use the underlying
asset and any option period to extend or terminate the lease if we are
reasonably certain to exercise the option. We re-evaluate short-term leases that
are modified and if they no longer meet the requirements to be treated as a
short-term lease, we recognize and measure the lease liability and ROU asset as
if the date of the modification is the lease commencement date (see Note 7 to
the accompanying consolidated financial statements). For short-term leases that
are modified and continue to meet the requirements to be treated as a short-term
lease, we remeasure the fixed lease payments under the modified lease, and
recognize lease payments as an expense on a straight-line basis over the
modified lease term.
For operating leases, we recognize lease expense related to fixed payments on a
straight-line basis over the lease term and lease expense related to variable
payments as incurred based on performance or usage in accordance with the
contractual agreements. For finance leases, we recognize the amortization of the
ROU asset over the shorter of the lease term or useful life
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of the underlying asset. We expense ROU assets acquired for research and
development activities under ASC Topic 730, Research and Development, if they do
not have an alternative future use, in research and development projects or
otherwise.
We use significant assumptions and judgment in evaluating our lease contracts
and other agreements under ASC 842, including the determination of whether an
agreement is or contains a lease, whether a change in the terms and conditions
of a lease contract represent a new or modified lease, whether a lease
represents an operating or finance lease, the discount rate used to determine
the present value of lease obligations and the term of embedded leases in our
manufacturing supply agreements.
Pre-Launch Inventory
Prior to an initial regulatory authorization for our product candidates, we expense costs relating to raw materials and inventory production as research and development expenses in our consolidated statements of operations in the period incurred. We capitalize the costs of production as inventory when we believe regulatory authorization and subsequent commercialization is considered probable and we expect to realize future economic benefit from the sales of the product candidate.
Upon authorization for distribution and use of NVX-CoV2373 following regulatory clearance from the EMA and the
Accounting for research and development expenses
We estimate our prepaid and accrued expenses related to our research and development activities using a process that involves reviewing contracts and purchase orders, communicating with our project managers and service providers to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or for which we have been invoiced in advance of the service. This estimation process includes a review of:
•expenses incurred in connection with agreements with contract research organizations (“CROs”) that conduct our clinical trials and third-party consultants; and
•the cost of developing and manufacturing vaccine components under third-party CMOs and CDMOs agreements, including expenses incurred for the procurement of raw materials, laboratory supplies and equipment. We base our expenses on our estimates of the services provided and efforts expended pursuant to contracts, statements of work and related change orders with the service provider, as well as discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services. The financial terms of these agreements are based on negotiated terms, vary from contract to contract and may result in an uneven level of activity over time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Additionally, invoicing from third-party service providers may not coincide with actual work performed and can result in a prepaid or an accrual position at the end of the period. The estimation process requires us to make significant judgments and estimates in determining the services incurred as of the balance sheet date, which may result in either a prepaid or an accrual balance. As actual costs become known, we adjust our estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from the related estimates and could result in us reporting amounts that are too high or too low in a particular period. Our prepaid and accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs, CDMOs, and third-party service providers. Due to the nature of the estimation process, there may be a difference between estimated costs and actual costs incurred. Historically, we have not experienced any material differences in prior periods.
Recent accounting pronouncements
See “Note 2 – Summary of significant accounting policies” included in our notes to the consolidated financial statements (under the heading “Recent accounting pronouncements”).
Operating results for fiscal years 2021 and 2020
The following is a discussion of our historical consolidated financial condition
and results of operations, and should be read in conjunction with the
consolidated financial statements and notes thereto set forth in this Annual
Report on Form 10-K. Additional information concerning factors that could cause
actual results to differ materially from those in our forward-looking statements
is described under Part I, Item 1A, "Risk Factors" of this Annual Report on Form
10-K.
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For our discussion of the year ended
Revenue
2021 2020 Change
Revenue (in thousands):
Grants $ 948,709 $ 453,210 $ 495,499
Royalties and other 197,581 22,388 175,193
Total revenue $ 1,146,290 $ 475,598 $ 670,692
Grants
The Company recognized grant revenue as follows:
2021 2020 Change
Grant Revenue (in thousands)
U.S. Government Partnership (a) $ 788,953 $ 204,727 $ 584,226
U.S. DoD 21,683 12,519 9,164
CEPI 135,445 223,158 (87,713)
BMGF 2,628 12,806 (10,178)
Total grant revenue $ 948,709 $ 453,210 $ 495,499
(a)
Grant revenue for 2021 was
Royalties and others
Royalties and other revenue for 2021 was$197.6 million as compared to$22.4 million for 2020, an increase of$175.2 million . Royalties and other revenue primarily comprised royalties under our licensing arrangements, and the increase in revenue was due to increased sales-based royalties by our license partners toSouth Korea andIndonesia . We expect revenue in 2022 to significantly increase as compared to 2021 due to our NVX-CoV2373 program, which we anticipate will continue to be funded by OWS and/or other revenue sources. Further, we anticipate bringing our NVX-CoV2373 vaccine candidate to market following receipt of global regulatory authorizations, and potential approvals that should significantly increase revenue (also see below under Liquidity and Capital Resources in this Management's Discussion and Analysis). In anticipation, we have entered into various APAs, as well as multiple collaboration and license agreements with strategic partners, to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalty revenue from the sale of NVX-CoV2373 by such partners. Expenses: 2021 2020 Change Expenses (in thousands): Research and development$ 2,534,508 $ 747,027 $ 1,787,481 General and administrative 298,358 145,290 153,068 Total expenses$ 2,832,866 $ 892,317 $ 1,940,549
Research and development costs
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Research and development expenses increased to approximately$2.5 billion for 2021 as compared to$747.0 million for 2020, an increase of$1.8 billion , due to increased development activities relating to NVX-CoV2373, as summarized in the table below. 2021 2020 Research and Development Expenses (in thousands) NVX-CoV2373$ 2,245,935 $
609 401
NanoFlu 7,761
14,802
Other vaccine development programs 818
2,651
Total direct external research and development expenses 2,254,514 626,854 Personnel costs
130,576
45,882
Stock-based compensation expense 86,928 55,955 Facility expenses 26,100 7,232 Other expenses 36,390 11,104 Total research and development expenses$ 2,534,508 $
747,027
Research and development expenses for NVX-CoV2373 for 2021 and 2020 included approximately$239 million and$217 million , respectively, related to the acceleration of manufacturing costs for leases that we determined were embedded in multiple manufacturing supply agreements with CMOs and CDMOs. During 2021 and 2020, our research and development activities were primarily focused on the development of NVX-CoV2373 and included direct external research and development expenses related to NVX-CoV2373 of$2.2 billion and$609.4 million , respectively, primarily comprised of costs related to the following:
•expenses incurred under agreements with CROs who conduct our clinical trials and third-party consultants related to the development of NVX-CoV2373;
•expenses incurred for the development and manufacturing of the antigenic drug substance and Matrix-M™ adjuvant components of NVX-CoV2373 under agreements we have entered into with third-party CMOs and CDMOs;
•expenses incurred for the supply of raw materials, supplies and laboratory equipment; and
•Other costs related to preclinical studies and regulatory advice, and related program management activities to support our growing global operations.
We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development. As we obtain data from preclinical studies and clinical trials, we may elect to discontinue or delay clinical trials in order to focus our resources on more promising vaccine candidates. Completion of clinical trials may take several years or more, but the length of time can vary substantially depending upon the phase, size of clinical trial, primary and secondary endpoints, and the intended use of the vaccine candidate. The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:
• the number of participants
•the number of sites included in clinical trials;
•whether the clinical trial sites are national, international or both;
•the registration time of the participants;
•duration of treatment and follow-up;
•the safety and efficacy profile of the candidate vaccine; and
•the cost, timing and ability to obtain regulatory approvals.
As a result of these uncertainties, we are unable to determine the duration and
completion costs of our research and development projects or when, and to what
extent, we will generate future cash flows from our research projects.
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For 2022, we expect total research and development expenses to decrease
significantly as compared to 2021. The decline in 2022 is anticipated to result
from expected capitalization of manufacturing costs during 2022 that were
previously recognized as research and development expenses in prior periods,
partially offset by research and development expenses related to increased
clinical activities as we continue to develop our NVX-CoV2373 and other
programs. Our cost of goods sold expenses could be significant depending on our
commercial shipment levels and timing of deliveries. However, we anticipate
initially recognizing a lower cost of goods sold expense as a result of
pre-launch inventory previously recognized as research and development expenses.
General and administrative expenses
General and administrative expenses increased to$298.4 million for 2021 from$145.3 million for 2020, an increase of$153.1 million . The increase in general and administrative expenses is primarily due to increased employee-related costs, including stock-based compensation expense, and an increase in professional fees in support of our NVX-CoV2373 program.
For 2022, we expect a significant increase in general and administrative expenses compared to 2021 due to increased activities related to supporting our NVX-CoV2373 program and increased employee-related costs and professional fees. We also expect to incur sales and marketing expenses following regulatory clearances and potential approvals of NVX-CoV2373.
Other Income (Expense):
2021 2020
Change
Other Income (Expense) (in thousands): Investment income$ 1,364 $ 1,014 $ 350 Interest expense (21,127) (15,145) (5,982) Other income (expense) (8,197) 12,591 (20,788)
Total other income (expenses), net
We had total other expense, net of$28.0 million for 2021 compared to total other expense, net of$1.5 million for 2020, an increase of$26.4 million . In 2021 and 2020, interest expense included$7.2 million and$3.1 million , respectively, related to finance leases. In 2021 and 2020, other income included a loss of$7.2 million and a gain of$12.6 million , respectively, due to changes in the foreign exchange rates, primarily on an intercompany loan withNovavax CZ. Income Tax Expense:
During the year ended
Net loss:
2021 2020 Change
Net loss (in thousands, except per share information): Net loss
$ (1,743,751) $ (418,259) $ (1,325,492) Net loss per share$ (23.44) $ (7.27) $ (16.17) Weighted average shares outstanding 74,400 57,554 16,846 Net loss for 2021 was$1.7 billion , or$23.44 per share, as compared to$418.3 million , or$7.27 per share, for 2020, an increase of$1.3 billion . The increase in net loss was primarily due to increased development activities relating to NVX-CoV2373, partially offset by increased revenue under the OWS Agreement and, to a lesser extent, royalties under our licensing arrangements.
The increase in the weighted average number of shares outstanding for 2021 results mainly from the sales of our common shares in 2021 and 2020.
Liquidity issues and capital resources
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Our future capital requirements depend on numerous factors including, but not limited to, our projected activities related to the development of NVX-CoV2373, including significant commitments under various CRO, CMO and CDMO agreements, the progress of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights and other manufacturing, sales and distribution costs. We plan to continue developing other vaccines and product candidates, such as our NanoFlu vaccine candidate and potential combination vaccines candidates, which are in various stages of development. We believe our operating expenses and capital requirements will fluctuate depending upon the timing of events, such as the progress of our NVX-CoV2373 clinical trials and regulatory approval for the use of NVX-CoV2373 in theU.S. and internationally, as well as the scope, initiation and progress of our preclinical studies and clinical trials related to other research and development activities. We have entered into APAs or supply agreements with Gavi, the EC, and various countries globally. We also have grant and license agreements. As ofDecember 31, 2021 , the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties under the licensing agreements, was approximately$8 billion . The timing to fulfill performance obligations related to grant agreements will depend on the results of our research and development activities, including clinical trials. The timing to fulfill performance obligations related to APAs will depend on timing of product manufacturing, delivery, and receipt of marketing authorizations. The remaining unfilled performance obligations are expected to be fulfilled in less than one year. The APAs or supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment. Such upfront payments generally become non-refundable upon our achievement of certain development and commercial milestones. However, certain of the APAs and supply agreements may be terminated by the counterparty if we do not timely achieve requisite regulatory approval for NVX-CoV2373 in the relevant jurisdictions under such agreements. If the APAs or supply agreements were terminated, the refundable portion of the upfront payments will be repaid. We expect to sign additional APAs or supply agreements that are currently in active discussions and negotiations. InMay 2021 , we finalized an APA with Gavi, building upon our MOU previously announced inFebruary 2021 . Under the terms of the agreement, 1.1 billion doses of NVX-CoV2373 are to be made available to countries participating in the COVAX Facility, which was established to allocate and distribute vaccines equitably to participating countries and economies. We expect to manufacture and distribute 350 million doses of NVX-CoV2373 to countries participating under the COVAX Facility. Under a separate purchase agreement with Gavi, SIIPL is expected to manufacture and deliver the balance of the 1.1 billion doses of NVX-CoV2373 for low- and middle-income countries participating in the COVAX Facility. We expect to deliver doses with antigen and adjuvant manufactured at facilities directly funded by the investments previously received from CEPI. InOctober 2021 , we entered into a supply agreement and a contract development manufacturing agreement with SIIPL and SLS under which SIIPL and SLS will supply us with NVX-CoV2373. We expect to deliver doses with antigen and adjuvant manufactured at facilities directly funded under the funding agreement with CEPI, with initial doses supplied by SIIPL and SLS under the supply agreement. We expect to supply significant doses that Gavi would allocate to low-, middle- and high-income countries, subject to certain limitations, utilizing a tiered pricing schedule and Gavi may prioritize such doses to low- and middle- income countries, at lower prices. Additionally, we may provide additional doses, to the extent available from CEPI-funded manufacturing facilities, in the event that SIIPL cannot materially deliver expected vaccine doses to the COVAX Facility. Together with SIIPL, we expect to initiate delivery of doses following receipt of appropriate regulatory authorizations. Under the APA, we received an upfront payment of$350 million from Gavi in 2021 and recorded a receivable as ofDecember 31, 2021 , for an additional$350 million because the Company secured EUL for NVX-CoV2373 by theWHO inDecember 2021 , which are recorded as deferred revenue. We have also entered into supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalties primarily from the sale of NVX-CoV2373 by our partners, such as SIIPL inIndia , Takeda inJapan , and SK bioscience in theRepublic of Korea . During 2021, we received royalties of$195.8 million under these licensing arrangements. We funded our operations in 2021 with cash and marketable securities on hand, upfront payments under APAs, and proceeds from the sale of common stock, together with revenue under the OWS Agreement and CEPI Funding Agreement that support our NVX-CoV2373 vaccine development activities. We anticipate our future operations to be funded by our cash, cash equivalents and marketable securities, upfront payments under our APAs and revenue under our OWS Agreement, and, following receipt of global regulatory authorizations, and potential approvals, revenue from product sales, royalties under licensing arrangements with our strategic partners, and/or other potential funding sources.
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no marketable securities, and$13.1 million in restricted cash as ofDecember 31, 2021 as compared to$553.4 million in cash and cash equivalents,$157.6 million in marketable securities, and$95.3 million in restricted cash as ofDecember 31, 2020 .
The following table summarizes the cash flows for 2021 and 2020:
2021 2020 Change
Summary of Cash Flows (in thousands):
Net cash (used in) provided by:
Operating activities $ 322,946 $ (42,541) $ 365,487
Investing activities 100,154 (377,778) 477,932
Financing activities 461,713 984,762 (523,049)
Effect of exchange rate on cash, cash equivalents and restricted cash
(5,292) 2,115 (7,407)
Net increase in cash, cash equivalents and restricted cash
879,521 566,558 312,963
Cash, cash equivalents and restricted cash at the beginning of the year
648,738 82,180 566,558
Cash, cash equivalents and restricted cash at the end of the year
$ 1,528,259
Net cash provided by operating activities increased to$322.9 million for 2021, as compared to$42.5 million used in 2020. The increase in cash provided is primarily due to payments under APAs recorded as deferred revenue, partially offset by funding of our increased net loss and the timing of payments to third parties. During 2021, our investing activities primarily consisted of capital expenditures and purchases and maturities of marketable securities. During 2020, our investing activities primarily consisted of capital expenditures, purchases and maturities of marketable securities, and our acquisition of Novavax CZ. Capital expenditures for the years endedDecember 31, 2021 and 2020 were$57.5 million and$54.6 million , respectively. For 2022, we expect an increase in our capital expenditures due to further development activities for our NVX-CoV2373 program, including the additional build out of research and development and manufacturing facilities and related equipment, and the build-out of our new corporate office facility to accommodate anticipated increases in headcount. Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements, finance lease payments related to embedded leases and, to a much lesser extent, exercises of stock-based awards and purchases under our employee stock purchase plan. In 2021, we received net proceeds of approximately$565 million from the sale of shares of common stock through our At Market Issuance Sales Agreements. In 2020, we received net proceeds of approximately$877 million (this amount excludes$3.2 million received in the first quarter of 2021 for shares traded in lateDecember 2020 ) from selling shares of common stock through our various At Market Issuance Sales Agreements and approximately$200 million through the issuance of preferred stock in a private placement.
Contractual obligations
The following table summarizes our contractual obligations as ofDecember 31, 2021 (in thousands): Less than 1 - 3 3 - 5 More than Contractual Obligations: Total One Year Years Years 5 Years Operating leases$ 81,191
Finance lease obligation
133,286 133,286 - - - Convertible notes (a) 325,000 - 325,000 - - Contractual obligations recognized as of December 31, 2021 539,477 166,245 339,342 14,705 19,185 Purchase commitments (b) 826,112 826,112 - - - Facilities lease agreement (c) 104,249 5,814 12,067 12,678 73,690 Total contractual obligations$ 1,469,838
(a) See Note 8 to the consolidated financial statements included in this Annual Report on Form 10-K regarding our Notes, which will mature onFebruary 1, 2023 , and bear cash interest of 3.75%, payableFebruary 1 andAugust 1 of each year. (b) This amount primarily represents our non-cancelable fixed payment obligations under certain CMO, CDMO, and lab supply agreements that we are not contractually able to terminate for convenience. Certain agreements provide for termination rights subject to termination fees. Under such agreements, we are contractually obligated to make payments to vendors, mainly to reimburse them for their estimated unrecoverable expenses incurred. As ofDecember 31, 2021 , these agreements are active 75
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ongoing arrangements and the Company expects to receive value from these arrangements in the future. The exact amount of such obligations is dependent on the timing of termination, and the exact terms of the relevant agreement, and cannot be reasonably estimated.
(c) This is the lease of 700 Quince Orchard which did not commence on
In addition to the above obligations, we enter into a variety of agreements and financial commitments in the normal course of business. The terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.
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